TUPE pension rights under threat

Labour & European Law ReviewWeekly Issue 31304 April 2013

In its response to a consultation on employee pension protection contributions, Thompsons has warned that the government’s proposals will remove significant rights from employees in occupational schemes who transfer under TUPE to another employer.

Those rights, derived from primary legislation, would be over-ridden by secondary legislation if the government was to go ahead. That would clearly be ultra vires (beyond their legal authority).

This is because section 257 of the Pensions Act 2004 (the primary legislation) imposes an obligation on a transferee to make pension contributions to a money purchase scheme (MPS) pension of a transferring employee in four different circumstances. The Act also gives an option to transferring employees to ask the transferee employer to make contributions to an MPS post transfer, in those situations.

Thompsons argues that the government’s proposal to allow a transferee to limit contributions to an MPS to those made by the transferor employer immediately before the transfer would mean that the transferee employer would not have to make any contribution if the transferor employer had not done so just before the transfer. As Thompsons points out, it cannot be right that the regulations take away rights given to transferring employees by the Pensions Act.

Contrary to the government’s assertions, Thompsons also believes that it was the legislative intent behind the 2005 regulations to allow employees the choice, post-transfer, of increasing their contributions, leading to a corresponding obligation on the employer to increase their contributions, up to a maximum of 6 per cent.

There is nothing in the Explanatory Note attached to the 2005 regulations to suggest that the level of future contribution of the transferee employer’s contributions should be set in stone by reference to the contributions made at the time of transfer. Such “intent” would in any event cut across the rights created by the primary legislation itself.

Andrew James of Thompsons said: “The government is leaving itself open to accusations that its intention is to ‘dumb down’ workers’ rights post-transfer, rather than enabling transferring workers to retain and protect existing rights. We cannot believe that is the government’s intention and, assuming it isn’t, we trust that the draft regulations will be withdrawn. In any event, in their current form, they are likely to be struck down by the courts as ultra vires.”